Principles of Microeconomics

By Peter Else; Peter Curwen | Go to book overview

CHAPTER FOUR

THE INDIVIDUAL AS A SELLER

So far we have considered the individual as a buyer and consumer of goods with a given source of money at his disposal, but we have not discussed in any detail how that money can be acquired. One obvious possibility is for it to be obtained by selling something, and most people obtain the means to buy goods by selling labour services. Since there is no reason to suppose that individuals are any less rational in their selling decisions than in their buying decisions, it seems reasonable to analyse them in a similar way and that is the task of this chapter. Selling decisions, of course, determine what the consumer supplies to the market rather than what he demands from it, but apart from that the underlying considerations are basically similar. To emphasize these similarities we will start by considering the case of an individual with a stock of goods that he can either use himself or sell to the market, and then go on to show how the analysis can be applied to the supply of labour services and to the supply of savings.


The supply of goods

To relate the discussion as closely as possible to that of the previous chapters, let us consider a situation in which an individual owns an orchard that, one autumn, yields him a crop of apples that he can either keep for his own use or take to the market and sell. If he sells apples he can buy other goods with the proceeds, so essentially he is faced with a set of choices that can be expressed in the form of a standard budget line as in Figure 4.1. In this case, however, assuming the consumer has no other sourse of income, the position of the budget line is determined by the size of the initial apple crop since if, in terms of the diagram, that crop amounts to S, that is also the maximum quantity of apples he can consume, and S is the point where the budget line meets the horizontal axis. The opposite extreme would be for the individual to sell all his apples and spend the proceeds on other things. If the price of apples is denoted by pA per kilogram, the revenue obtainable from selling S kilograms

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